The struggling lender has previously said that it needs £750m to plug its capital shortfall.

However, it is understood that Blue Mountain Capital Management, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point are trying to structure a deal that would require them to put in less.

Despite the potential bid, a rescue by its hedge fund investors is considered the more likely of the two options.

A sale to Al Faisal Holding and Interritus would require Co-op Bank investors to agree to take losses - putting them in a pivotal position - and it is thought that some of the hedge funds do not want a third-party to own the business.

The broader Co-operative Group currently has a 20pc stake in the bank, which will be either sold off entirely or significantly cut. Co-op Group has already written the value of the shareholding down to zero.

Failure to agree either a fundraise or sale would result in the Bank of England's Prudential Regulation Authority (PRA) step in and put Co-op Bank in resolution to protect it 1.4m current account customers. Under that scenario, the regulator is likely to sell of parts of the lender piecemeal as its winds the bank down.

Co-op Bank said the PRA "has welcomed the sale and capital raise process".

A key sticking point in a rescue is the broader Co-op Group pension scheme, which the bank is part of and which has some 90,000 members. The hedge funds want to split the lender from the scheme and it is thought they want a rescue deal to end the firm's obligations under a so-called "last man standing" clause that currently means the Co-op Group and Co-op Bank would each guarantee the retirement plan if the other party failed.

"The bank and other relevant parties continue active discussions regarding separation of the Co-operative Pension Scheme," the lender said.

The ethical bank has never recovered from its near-collapse in 2013, when US hedge funds stepped in to plug a £1.5bn black hole in its finances. Rock bottom interest rates have lasted longer than its bosses had expected and have hampered a turnaround plan, which is now being driven by new boss Liam Coleman.

Co-op Bank was embroiled in controversy four years ago when its former chairman, Paul Flowers, become embroiled in a sex-and-drugs scandal.